5 March, 2019
Given the recent patch of economic data, it is unlikely that the central bank will be pushing for rate hikes. The OIS money markets are also signaling no change to the BoC’s rates this week.
The central bank held interest rates unchanged in January at 1.75%. However, officials maintained that it was not done with rate hikes despite holding rates steady.
The BoC Governor, in a speech recently said that higher interest rates were forcing consumers to cut back on discretionary spending. The BoC Governor stated tha, since the middle of 2017, the central bank raised interest rates five times. He continued by affirming that interest rates in Canada will need to move higher.
However, at the same time, Poloz said that the timing of the rate hikes remains uncertain due to mixed messages from the global economy.
At its previous meeting, the BoC statement read:
“Meanwhile, consumption spending and housing investment have been weaker than expected as housing markets adjust to municipal and provincial measures, changes to mortgage guidelines, and higher interest rates. Household spending will be dampened further by slow growth in oil-producing provinces. The Bank will continue to monitor these adjustments.”
Recent economic data has remained muted with consumption spending and household investment staying weak.
Here’s a quick recap of the economic data since the last BoC meeting.
Retail sales in Canada declined in December amid lower energy prices.
The data marked a year that saw the weakest pace of growth in retail sales in nearly a decade.
Data from Statistics Canada showed that retail sales fell 0.1% on the month in December to a seasonally adjusted 50.35 billion CAD. The markets were, however, expecting to see a 0.3% decline.
The 0.1% decline in December followed the November retail sales decline of 0.9%. However, in volume terms, retail sales rose 0.2%. On a year over year basis, Canada’s retail sales slowed to a pace of 1.7% in 2018. This was the weakest increase in a decade. And retail sales slowed from 2.7% from the year before, while rising a solid 7.1% from 2016.
The decline in retail sales came as energy prices fell 3.6% reflecting the lower oil prices.
Excluding gasoline sales, retail sales increased by 0.4% during the month. Sales declined in nearly eleven categories, according to Statistics Canada.
Besides energy, other sectors that fell include electronics which was down 4.0% while clothing stores fell 1.0% during the month.
The latest inflation data from Canada showed that on a 12-month basis, inflation fell to 1.4% from 2.0% in December. This was broadly in line with the median estimates. Inflation, which rose in the previous month across some sectors, pulled back.
Air transportation and travel services, as well as telecommunications, saw a decline in January. The services inflation eased to 2.7% on the year compared to the 3.5% seen in the month before. Goods price inflation fell 0.2% on the year while gasoline prices posted a major drag, falling 14.2% on the year.
Despite the decline in headline inflation, the BoC’s measure of core inflation remained close to the 2.0% target rate. As a result, the central bank is expected to look through the temporary fluctuations in the headline CPI.
The BoC had previously forecast that inflation would remain above 2.0% for until the fourth quarter of this year. Headline CPI fell 0.1% in January following a 0.2% increase in December on a month over month basis.
Latest GDP figures were released on Friday last week. Data showed that Canada’s GDP advanced just 0.1% in the three months ending December 2018. This pushed the annualized GDP for 2018 to just 0.4%.
This was the weakest pace of GDP growth in nearly two years. Economists polled had forecast that GDP would rise 1.0% in the final three months of the year. The declines in the GDP came on account of weaker oil prices, according to Statistics Canada.
There was a significant build-up in inventory which managed to offset some of the declines. Consumption spending was seen rising at the slowest pace in nearly four years with housing falling the most in a decade.
Business investment was down sharply for the second consecutive quarter amid domestic demand falling the most since 2015.
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